March 24, 2023
Source: Wired
Photo Source: Unsplash,
The Fight to Expose Corporations’ Real Impact on the Climate
Most carbon emissions caused by businesses are hidden from sight. US and California regulators are pushing to require companies fully disclose them.
SAY YOU ARE a maker of computer graphics cards, under pressure from investors questioning your green credentials. You know what to do. You email your various departments, asking them to tally up their carbon emissions and the energy they consume. Simple enough. You write a report pledging a more sustainable future, in which your trucks are electrified and solar panels adorn your offices.
Good start, your investors say. But what about the mines that produced the tantalum or palladium in your transistors? Or the silicon wafers that arrived via a lengthy supply chain? And what of when your product is shipped to customers, who install it in a laptop or run it 24/7 inside a data center to train an AI model like GPT-4 (or 5)? Eventually it will be discarded as trash or recycled. Chase down every ton of carbon and the emissions a company creates are many times times higher than it first seemed.
Calls are growing to require corporations to go through that rigorous carbon accounting process, part of a push to reveal emissions hidden within product life cycles. Wall Street’s regulator, the US Securities and Exchange Commission, argues that each ton of carbon emitted represents a risk that investors deserve to know about, because it might lead to costs and disruption from future carbon regulations around the world, and could alienate customers or employees concerned about climate change. Last year, the agency proposed rules, expected to be finalized next month, that would require most of the largest companies to take stock of all emissions, including those concealed deep in their supply chains. Politicians in California have a parallel effort to force both public and private companies doing business in the state to confess the full scope of their emissions. The motivation is not just to help investors, but to make companies own up to the damage they cause, and help consumers sniff out false claims about sustainability. The proposed rules would require roughly 5,000 companies with revenue that exceeds $1 billion to report their emissions to a public database.
Scott Wiener, a state senator from San Francisco, imagines standing in the grocery aisle and being able to quickly check up on the emissions of companies marketing “climate-friendly” or “low-carbon” products. He’s hopeful forcing companies to make full disclosures will make greenwashing wither and “push enormous companies to do whatever it takes to decarbonize their supply chains.” A bank that invests in carbon-intensive businesses, for example, might think twice before doing so if customers can easily compare its operations with competitors.
Cynthia Hanawalt, a senior fellow at Columbia University’s Sabin Center for Climate Change Law, says that requiring these disclosures could flush out the true scale of corporate emissions. The majority are currently hidden from sight. “Right now we have a very haphazard system with inconsistent voluntary reporting,” she says. “That's not serving anyone well—except maybe the fossil fuel industry.”
Both the SEC and California’s efforts to force greater transparency have seen pushback. Many companies voluntarily disclose some of their carbon pollution, but with a focus on emissions from their own emissions and those from their energy use, categorized as “Scope 1” and “Scope 2” in climate jargon. These are often the easiest emissions for a company to control, by doing things like installing solar panels on offices or electrifying trucks. “Scope 3” is everything else, including emissions related to supply chains and product use or investments. For many companies, those indirect emissions dwarf all the rest. Some companies and business groups contend that it is unfair to hold them responsible for pollution that they may not directly control. A graphics card maker, for example, may say it cannot control the coal plants that power its suppliers' factories in distant countries; an oil company might argue that it doesn't control how its customers use its products. They may drill it, but customers burn it. In California, Wiener and others are making their second attempt at mandating more complete disclosures—the first failed last year by a single vote in the State Assembly, after opposition from business groups. “I think there’s a public shaming effort going on here,” says Brady Van Engelen, a policy advocate for the California Chamber of Commerce, which opposes the bill. The group would prefer to see the state come up with incentives for decarbonizing operations.
Van Engelen adds that the requirement to report on supply chain emissions will also end up passing the burden of carbon accounting to smaller suppliers. They might not be subject to the rules themselves, but they'd be pressed by large corporations to provide data. Wiener says he wants the rules, if passed, “to be implementable,” and he notes that the bill allows the use of formulas and averages to assess supply chain emissions, rather than tracking down each and every supplier.
Critics also note that requiring large firms to account for their suppliers may mean some emissions get counted twice—if, for example, a graphics card’s emissions are reported by both its manufacturer and a company that includes its product in PCs, or a cloud provider that uses them to train AI models.
But advocates of the new measures say their point is not perfect accounting, but rather to force more of the transparency needed to start tackling a systemic challenge. Only the largest corporations have the kind of visibility into and leverage over their supply chains to demand reductions in emissions. If the whole world can see those dirty secrets, maybe they’ll be spurred into action.
“At the end of the day, it's data,” says Sarah Sachs, a senior associate at Ceres, a business group that is pushing for disclosure rules at the SEC and in California. “We just need this data to be available.
She adds that the California rules are complementary to the SEC rules, applying to a slightly different set of companies. But if widely expected legal challenges to the SEC’s rules—some expected to come from Republican attorneys general waging a broader war against corporate sustainability pledges—water down or delay that effort, California’s law could also serve as a backstop, Wiener says.
He points to other state environmental laws, such as California’s standards for automotive tailpipe emissions. When the federal government abandoned Obama-era rules under Trump, California’s more stringent rules became de facto national standards. It simply wasn’t possible for automakers to sidestep the world’s fourth largest economy.
For that scenario to play out, the bill will have to make it into California law. At a State Senate hearing last week, CalChamber was joined by a legion of lobbying groups representing manufacturers, banks, farmers, and other business interests, emphasizing the burden that the rules would place on smaller businesses. A Democratic member who supported the prior version of the bill abstained from voting to continue discussions on the bill, citing concerns from farming groups. But Wiener remained optimistic, pointing out that a number of corporations, including Patagonia and Ikea, have stated their support for the bill, and already do similar reporting on a voluntary basis. As for others, “I think they’re afraid they’re going to be embarrassed by these disclosures,” Wiener says.
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